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Chapter 1

Statement of Financial Position

Basic Problems

Problem 1-1 (IFRS)

Darwin Company provided the following information at year-end:


Cash 300,000
Accounts Receivable 1,200,000
Inventory, including inventory expected in the ordinary
course of operations to be sold beyond 12 months
amounting to P700,000 1,000,000
Prepaid expenses 100,000
Financial asset held for trading 200,000
Equity investment at fair value through other
comprehensive income 800,000
Deferred tax asset 150,000

What amount should be reported as total current assets at year-end?

a. 2,800,000
b. 2,550,000
c. 3,600,000
d. 2,100,000

Solution 1-1 Answer a

Cash 300,000
Accounts Receivable 1,200,000
Inventory 1,000,000
Prepaid expenses 100,000
Financial assets held for trading 200,000

Total current assets 2,800,000

In the absence of statement to the contrary, equity investment at fair value through other comprehensive income shall
be classified as noncurrent.

PAS 1 and PAS 12 provide that deferred tax asset is a noncurrent asset.
Problem 1-2 (AICPA Adapted)

Violago Company provided the following account balances at year-end:

Cash 1,100,000
Accounts receivable 1,600,000
Inventory 3,000,000
Financial assets at fair value through profit or loss 500,000
Bonds investment at amortized cost 1,300,000
Investment in associate 1,500,000
Equipment and furniture 2,500,000
Accumulated depreciation 1,500,000
Patent 400,000
Deferred charges 100,000
Equipment classified as held for sale 2,000,000

What total amount should be reported as current assets at year-end?

a. 6,300,000
b. 8,300,000
c. 8,200,000
d. 9,800,000

Solution 1-2 Answer c

Cash 1,100,000
Accounts receivable 1,600,000
Inventory 3,000,000
Financial assets at fair value through profit or loss 500,000
Equipment classified as held for sale 2,000,000

Total current asset 8,200,000

The bond investment at amortized cost is classified as noncurrent.

The investment in associate is a noncurrent asset.

Under PFRS 5, a noncurrent asset classified as held for sale should be reported as current asset.

The deferred charges are considered noncurrent because technically


These expire in more than one year from the end of reporting period.
Problem 1-3 (AICPA Adapted)

Petite Company reported the following current assets on December


31 , 2016:

Cash 5,000,000
Accounts receivable 2,000,000
Inventory, including goods received on
Consignment P200,000 800,000
Bond investment at fair value through
other comprehensive income 1,000,000
Prepaid expenses, including including a deposit of P50,000
made on inventory to be delivered in 18 months 150,000

Total current assets 8,950,000

Cash in general checking account 3,500,000


Cash fund to be used to retire bonds payable in 2018 1,000,000
Cash held to pay value added taxes 500,000

Total cash 5,000,000

What total amount of current assets should be reported on December 31, 2016?

a. 6,750,000
b. 6,700,000
c. 7,700,000
d. 7,750,000

Solution 1-3 Answer b

Cash (3,500,000 + 500,000) 4,000,000


Accounts Receivable 2,000,000
Inventory (800,000 – 200,000) 600,000
Prepaid expenses (150,000-50,000) 100,000

Total current assets 6,700,000

The goods received on consignment should be excluded from inventory.

The cash fund to be used to retire bonds payable in 2018 should be classified as noncurrent.

The bond investment at fair value through other comprehensive income is a noncurrent asset.
Problem 1-4 (AICPA Adapted)

Rice Company was incorporated on January 1, 2016 with P5,000,000 from the issuance of share capital and borrowed funds of
P1,500,000. During the first year, net income was P2,500,000.

On December 15, the entity paid a P500,000 cash dividend. On December 31, 2016, the liabilities had increased to P1,800,000.

On December 31, 2016, what amount should be reported as total assets?

a. 6,500,000
b. 9,300,000
c. 8,800,000
d. 6,800,000

Solution 1-4 Answer c

Liabilities 1,800,000
Share Capital 5,000,000
Retained Earnings (P2,500,000 less dividend P500,000) 2,000,000

Total liabilities and shareholders’ equity 8,800,000

Problem 1-5 (AICPA Adapted)

Mirr Company was incorporated on January 1, 2016 with proceeds from the issuance of P7,500,000 in share capital and
borrowed funds of P1,100,00. During the first year, revenue from sales and consulting amounted to P8,200,000, and operating
costs and expenses totaled P6,400,000.

On December 15, 2016, the entity declared a P300,000 dividend, payable to shareholders on January 15,2017. The liabilities
increased to P2,000,000 by December 31,2016.

On December 31, 2016, what amount should be reported as total assets?

a. 11,000,000
b. 11,300,000
c. 10,100,000
d. 12,100,000

Solution 1-5 Answer a

Liabilities 2,000,000
Share Capital 7,500,000
Retained Earnings (8,200,000-6,400,000-300,000) 1,500,000

Total liabilities and shareholders’ equity 11,000,000


Problem 1-6 (AICPA Adapted)

Arabian Company reported the following current assets on December 31,2016:

Cash 4,500,000
Accounts Receivable 7,500,000
Notes Receivable, net of discounted note P500,000 2,000,000
Inventory 4,000,000

18,000,000

An analysis disclosed that accounts receivable compromised the following:

Trade accounts receivable 5,000,000


Allowance for doubtful accounts (500,000)
Selling price of Arabian Company’s unsold goods sent
to Tar Company on consignment at 150% of cost
and excluded from Arabian’s ending inventory 3,000,000

7,500,000

On December 31, 2016, what amount should be reported as total current assets?

a. 17,000,000
b. 17,500,000
c. 15,000,000
d. 16,500,000

Solution 1-6 Answer a

Cash 4,500,000
Accounts Receivable 5,000,000
Allowance for doubtful accounts (500,000)
Notes receivable 2,000,000
Inventory (4,000,000 + 2,000,000) 6,000,000

Total current assets 17,000,000

The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of goods should be
included in inventory.

The cost of goods out on consignment is P3,000,000 divided by 150% or P2,000,000

The discounted note receivable is properly netted against the total notes receivable.
Problem 1-7 (AICPA Adapated)

On December 31, 2016, Statute Company reported the following current assets:

Cash 700,000
Accounts Receivable 1,200,000
Inventory 600,000

An examination of the accounts receivable revealed the following:

Trade accounts 930,000


Allowance for doubtful accounts (20,000)
Claim against shipper for goods lost in transit 30,000
Selling prices of unsold goods sent out on
consignment at 130% of cost and not included
In ending inventory 260,000

Total accounts receivable 1,200,000

What is the correct amount of current assets on December 31, 2016?

a. 2,440,000
b. 2,210,000
c. 2,500,000
d. 2,240,000

Solution 1-7 Answer a

Cash 700,000
Accounts receivable 930,000
Allowance for doubtful accounts (20,000)
Claim receivable 30,000
Inventory (600,000 + 200,000) 800,000

Total current assets 2,440,000

The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of goods should
be included in inventory.

The cos of goods out on consignment is P260,000 divided by 130% or P200,000.


Problem 1-8 (PHILCPA Adapted)

Caticlan Company provided the following data on December 31, 2016:

Cash, including sinking fund of P500,000 2,000,000


Notes receivable 1,200,000
Notes receivable discounted 700,000
Accounts receivable – unassigned 3,000,000
Accounts receivable – assigned 800,000
Allowance for doubtful accounts 100,000
Equity of assignee in accounts receivable assigned 500,000
Inventory, including P600,000 cost of goods in transit
purchased FOB destination. The goods were
received on January 3, 2017 2,800,000

What total amount of current assets should be reported on December 31, 2016?

a. 7,900,000
b. 8,000,000
c. 7,400,000
d. 7,700,000

Solution 1-8 Answer a

Cash (2,000,000 – 500,000) 1,500,000


Notes receivable 1,200,000
Notes receivable discounted (700,000)
Accounts receivable – unassigned 3,000,000
Accounts receivable – assigned 800,000
Allowance for doubtful accounts (100,000)
Inventory (2,800,000 – 600,000) 2,200,000

Total current assets 7,900,000

The sinking fund is a noncurrent asset.

The equity of the assignee in assigned accounts shall not be offset against the assigned accounts receivable but included in
current liabilities.

The note receivable discounted should be deducted from the total notes receivable with disclosure of contingent liability.
Problem 1-9 (AICPA Adapted)

East Company reported the following current assets ar year-end:

Cash 3,200,000
Accounts receivable 3,000,000
Inventory 2,800,000
Prepaid insurance 200,000

Total current assets 9,200,000

The accounts receivable consisted of the following:

Customers’ accounts 1,420,000


Employees’ account-current 240,000
Advances to subsidiary 260,000
Allowance for uncollectible accounts (120,000)
Subscription receivable, not collectible currently 1,200,000

Total accounts receivable 3,000,000

What total amount should be reported as current assets at year-end?

a. 8,000,000
b. 9,200,000
c. 7,740,000
d. 8,940,000

Solution 1-9 Answer c

Cash 3,200,000
Accounts receivable 1,420,000
Allowance for uncollectible accounts (120,000)
Receivable from employees 240,000
Inventory 2,800,000
Prepaid insurance 200,000

Total current assets 7,740,000

The advances to subsidiary should be classified as noncurrent.

The subscription receivable should be reported as a deduction from subscribed share capital because it is not collectible
currently.
Problem 1-10 (AICPA Adapted)

Gar Company reported the following liability account balances on December 31, 2016:

Accounts payable 1,900,000


Bonds payable, due December 31, 2017 3,400,000
Discount on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900,000
Note payable 600,000

The deferred tax liability is based in temporary differences that will reverse in 2018.

On December 31, 2016, what total amount should be reported as current liabilities?

a. 7,100,000
b. 6,700,000
c. 6,500,000
d. 6,900,000

Solution 1-10 Answer c

Accounts payable 1,900,000


Dividends payable 500,000
Income tax payable 900,000
Bonds payable 3,400,000
Discount on bonds payable (200,000)

Total current liabilities 6,500,000

Under PAS 1 and PAS 12, a deferred tax liability should be classified as noncurrent.

The bonds payable minus the discount on bonds payable should be classified as current because the bonds are due within one
year.

The dividends payable and income tax payable are normally classified as current.

The note payable is classified as noncurrent because it matures in more than one year from the end of reporting period.
Problem 1-11 (AICPA Adapted)

Brite Company provided the following information on December 31, 2016:

Accounts payable 550,000


Unsecured note payable, 8%, due in July 1, 2017 4,000,000
Accrued expenses 350,000
Contingent liability 450,000
Deferred tax liability 250,000
Senior binds payable, 7%, due March 31, 2017 5,000,000

The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit against the entity.

The legal counsel expects the suit to be settled in 2017 and has estimated that the entity will be liable for damages in the range
of P450,000 to P750,000.

The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2017.

What total amount should be reported as current liabilities?

a. 10,350,000
b. 10,150,000
c. 9,900,000
d. 4,900,000

Solution 1-11 Answer c

Accounts payable 550,000


Unsecured note payable 4,000,000
Accrued expenses 350,000
Senior bonds payable 5,000,000

Total current liabilities 9,900,000

The contingent liability is only disclosed because it is a possible loss.

Under IFRS, the deferred tax liability is classified as noncurrent regardless of the reversal period.
Problem 1-12 (PHILCPA Adapted)

Burma Company disclosed the following information:

Accounts payable, after deducting debit balances


in suppliers’ accounts amounting to P100,000 4,000,000
Accrued expenses 1,500,000
Credit balances of customers’ accounts 500,000
Stock dividend payable 1,000,000
Claims for increase in wages and allowance by
employees of the entity, covered in a pending lawsuit 400,000
Estimated expenses in redeeming prize coupons 600,000

What amount should be reported as total current liabilities?

a. 6,700,000
b. 6,600,000
c. 7,100,000
d. 7,700,000

Solution 1-12 Answer a

Accounts payable (4,000,000 + 100,000) 4,100,000


Accrued expenses 1,500,000
Credit balances in customers’ accounts 500,000
Estimated liability for coupons 600,000

Total current liabilities 6,700,000

The debit balances in suppliers’ accounts are not “netted” against accounts payable but should be reported as current asset.

The stock dividend payable is not an accounting liability but presented as part of shareholders’ equity as an additional to
share capital.

The claims for increase in wages and allowance should be disclosed as contingent liability.
Problem 1-13 (AICPA Adapted)

Mazda Company reported the following liability balances on December 31, 2016:

10% note payable issue on October 1, 2015, maturing


October 1, 2017 2,000,000
12% note payable issued on March 1, 2015, maturing
on March 1, 2017 4,000,000

The 2016 financial statements were issued on March 31, 2017. Under the loan agreement for the 10% note payable, the entity
has the discretion to refinance the obligation for at least twelve months after December 31, 2016.

On March 1, 2017, the entire P4,000,000 balance of the 12% note payable was refinanced through issuance of a long-term
obligation payable lump sum.

What amount of the notes payable should be classified as current on December 31, 2016?

a. 6,000,000
b. 4,000,000
c. 2,000,000
d. 0

Solution 1-13 Answer b

The 10% note payable is classified as noncurrent.

PAS 1, paragraph 73, provides that if an entity has the discretion to refinance or roll over an obligation for at least twelve
months after the reporting period under an existing loan facility, the obligation shall be classified as noncurrent, even if it
would otherwise be due within a shorter period.

The 12% note payable is classified as current.

PAS 1, paragraph 72, provides that an obligation that matures within one year from the end of the reporting period is
classified as current even if it is refinanced on a long-term basis after the reporting period and before issuance of the
financial statements.

The 12% note payable is refinanced on March 1, 2017 and therefore classifies as current.
Problem 1-14 (AICPA Adapted)

Willem Company reported the following liabilities on December 31, 2016:

Accounts Payable 750,000


Short-term borrowings 400,000
Bonds payable due 2017 3,000,000
Premium on bonds payable 200,000
Mortgage payable, current portion P500,000 3,500,000
Bank loan, due June 30, 2017 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on January 15,2017. The financial statements were issued March
1, 2017.

What total amount should be reported as current liabilities on December 31, 2016?

a. 2,650,000
b. 5,850,000
c. 5,350,000
d. 4,850,000

Solution 1-14 Answer b


Accounts payable 750,000
Short-term borrowings 400,000
Bonds payable 3,000,000
Premium on bonds payable 200,000
Mortgage payable - current portion 500,000
Bank loan 1,000,000

Total current liabilities 5,850,000

The bank loan is classified as current because it is refinanced on January 15, 2017 after the end of the reporting period.

The bonds payable plus the premium on bonds payable should be classified as current because the bonds are due in one year
from the end of reporting period.

Problem 1-15 (IAA)

On December 31, 2016, Ace Company had P40,000,000 note payable due on February 28, 2017. On December 31, 2016, the
entity arranged a line of credit with City Bank which allows the entity to borrow up to P35,000,000 at one percent above the
prime rate for three years.

On February 15, 2017, the entity borrowed P25,000,000 from City Bank and used P5,000,000 additional cash to liquidate
P30,000,000 note payable. The financial statements were issued on March 31, 2017.

What amount of note payable should be reported as current liability on December 31, 2016?

a. 40,000,000
b. 10,000,000
c. 5,000,000
d. 0

Solution 1-15 Answer a

The refinancing occurred on February 15, 2017, which is after the end of the reporting period and before issuance of the 2016
financial. Thus, the note payable is classified totally as current.
Problem 1-16 (IAA)

Jam Company had P2,000,000 note payable that is due on February 28, 2017. The entity borrowed P1,600,000 on February 25,
2017 which has a five year term and used the proceeds to pay down the note and used other cash to pay the balance.

How much of the note payable is classified is classified as current in the December 31, 206 financial statements that were
issued on March 31, 2017?

a. 2,000,000
b. 1,600,000
c. 400,000
d. 0

Solution 1-16 Answer a

The note payable is entirely classified as current because it is refinanced on February 25, 2017 which is after the end of
reporting period.

Problem 1-17 (AICPA Adapted)

United Company provided the following current assets and shareholders’ equity on December 31, 2016:
Cash 600,000
Financial assets at fair value through profit or loss,
including cost of P300,000 of United Company
shares 1,000,000
Accounts receivable 3,500,000
Inventory 1,500,000

Total current assets 6,600,000

Share capital 5,000,000


Share premiuim 2,000,000
Retained earnings 500,000
Total shareholders’ equity 7,500,000

What amount should be reported as total shareholders’ equity?

a. 7,200,000
b. 7,500,000
c. 7,800,000
d. 5,200,000

Solution 1-17 Answer a


Share capital 5,000,000
Share premium 2,000,000
Retained earnings 500,000
Treasury shares, at cost (300,000)
Total shareholders’ equity 7,200,000

The treasury shares are excluded from financial assets at fair value through profit or loss but should be reported as a
deduction from shareholders’ equity.

Cash 600,000
Financial assets at fair value (1,000,000 – 300,000) 700,000
Accounts receivable 3,500,000
Inventory 1,500,000

Total current assets 6,300,000


Problem 1-18

Kalinga Company provided the following information at year-end:

Share capital 15,000,000


Share premium 5,000,000
Treasury shares, at cost 2,000,000
Actuarial loss on defined benefit plan 1,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000
Cumulative translation adjustment – credit 1,500,000

What amount should be reported as total shareholders’ equity?

a. 31,500,000
b. 32,500,000
c. 28,500,000
d. 25,500,000

Solution 1-18 Answer a

Share capital 15,000,000


Share premium 5,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000
Cumulative translations adjustment – credit 1,500,000
Actuarial loss on defined benefit plan (1,000,000)
Treasury shares, at cost (2,000,000)

Total shareholders’ equity 31,500,000

The actuarial loss on defined benefit plan is reported as component of other comprehensive income.

The credit in the cumulative translation adjustment account is a translation gain reported as component of other comprehensive
income.

If the cumulative translation adjustment account has debit balance, it is a translation loss.
Problem 1-19 (IAA)

Silver Company provided the following information at year-end:

Share premium 1,000,000


Accounts payable 1,100,000
Preference share capital, at par 2,000,000
Ordinary share capital, at par 3,000,000
Sales 10,000,000
Total expenses 7,800,000
Treasury shares at cost – ordinary 500,000
Dividends 700,000
Retained earnings – January 1 1,000,000

What total shareholders’ equity should be reported on December 31?

a. 8,000,000
b. 8,500,000
c. 5,800,000
d. 8,700,000

Solution 1-19 Answer a

Sales 10,000,000
Total expenses (7,800,000)

Net income 2,200,000


Retained earnings – January 1 1,000,000
Dividends (700,000)

Retained earnings – December 31 2,500,000

Preference share capital 2,000,000


Ordinary share capital 3,000,000
Share premium 1,000,000
Retained earnings 2,500,000
Treasury shares at cost (500,000)

Total shareholders’ equity 8,000,000


Problem 1-20 (AICPA Adapted)

Mont Company reported net assets totaling P8,750,000 at year-end which included the following:

Treasury shares of Mont Company at cost 250,000


Idle machinery 100,000
Trademark 150,000
Allowance for inventory writedown 200,000

What amount should be reported as net assets at year-end?

a. 8,500,000
b. 8,400,000
c. 8,300,000
d. 8,200,000

Solution 1-20 Answer a

Reported net assets 8,750,000


Treasury shares (250,000)

Adjusted net assets 8,500,000

Problem 1-21 (PHILCPA Adapted)

Peach Company reported total assets of P8,500,000 at year-end which included the following:

Treasury shares of Peach Company at cost 500,000


Unamortized patent 300,000
Cash surrender value of life insurance 150,000
Cumulative transaction loss 250,000

What amount should be reported as total assets at year-end?

a. 8,000,000
b. 7,750,000
c. 8,500,000
d. 8,250,000

Solution 1-21 Answer b

Adjusted total assets (8,500,000 – 500,00 – 250,000) 7,750,000


Problem 1-22 (IAA)

Alena Company provided the following information at year-end:

Property, plant, and equipment 35,000,000


Land 20,000,000
Cash 5,000,000
Accounts receivable 20,000,000
Allowance for doubtful accounts 1,000,000
Merchandise inventory 13,000,000
Prepaid insurance 2,500,000
Financial asset at fair value through other
comprehensive income 7,000,000
Accounts payable 8,000,000
Wages payable 2,000,000
Short-term note payable 3,000,000
Bonds payable 40,000,000
Premium on bonds payable 3,000,000

What is the working capital?

a. 46,500,000
b. 33,500,000
c. 26,500,000
d. 35,500,000

Solution 1-22 Answer c

Current assets:
Cash 5,000,000
Accounts receivable 20,000,000
Allowance for doubtful accounts (1,000,000)
Merchandise Inventory 13,000,000
Prepaid insurance 2,500,000 39,500,000

Current liabilities:
Accounts payable 8,000,000
Wages payable 2,000,000
Short-term note payable 3,000,000 13,000,000

Working Capital 26,500,000